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Eric Yeung 👍🚀🌕

@KingKong9888

Mar 15, 2025

Read this if you want to learn what’s going on with the EFPs that tie the COMEX-LBMA-ETFs together for the Western #Gold & #Silver trade. This here is a detailed explanation of EFP physical metal delivery settlements.

Below is a real-life example of how a COMEX Gold Exchange for Physical (EFP) transaction might be settled, step by step. This example is based on the mechanics of COMEX gold futures and the EFP process as facilitated by the CME Group, which oversees COMEX. An EFP allows traders to swap a futures position for a physical position (or vice versa) off-exchange, with the transaction later reported to the exchange. For this example, let’s assume a scenario involving a bullion bank and a gold producer on March 15, 2025.

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### Example Scenario
A bullion bank holds a short position of 100 COMEX gold futures contracts (equivalent to 10,000 troy ounces of gold) expiring in April 2025. The bank does not intend to deliver gold against these contracts via the standard COMEX delivery process (i.e., using registered gold in COMEX-approved depositories). Instead, it opts to close its position through an EFP by negotiating with a gold producer who has 10,000 ounces of physical gold available. The goal is to settle the futures position off-exchange and take delivery of physical gold.

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### Step-by-Step Settlement Process

#### Step 1: Negotiation Between Parties
- **Date:** March 15, 2025
- The bullion bank contacts the gold producer to negotiate the EFP. They agree to exchange the bank’s 100 short COMEX gold futures contracts (10,000 ounces) for 10,000 ounces of physical gold held by the producer.
- They settle on a price differential (the EFP price), which reflects the difference between the COMEX futures price and the spot price of physical gold, adjusted for factors like location, transportation costs, and timing. For simplicity, let’s assume the COMEX April 2025 gold futures price is $2,500 per ounce, and they agree on an EFP differential of -$5 per ounce, making the effective price for the physical gold $2,495 per ounce.

#### Step 2: Agreement on Physical Gold Specifications
- The physical gold must meet COMEX standards for delivery eligibility (e.g., 99.5% purity, in the form of 100-ounce bars or 1-kilogram bars from an approved refiner). However, in an EFP, the gold does not need to be in a COMEX-approved depository—it can be anywhere, as long as both parties agree.
- In this case, the producer has 100 bars of 100-ounce gold (10,000 ounces total) stored in a private vault in London. The bank accepts this gold as the “related position” in the EFP, even though it’s not in a COMEX depository.

#### Step 3: Execution of the EFP Transaction
- The bullion bank and gold producer execute the EFP off-exchange (i.e., in the over-the-counter or OTC market). The terms are:
- The bank closes its 100 short futures contracts (selling its obligation to deliver 10,000 ounces on COMEX).
- The producer simultaneously delivers 10,000 ounces of physical gold to the bank’s designated account or vault.
- This is a bilateral agreement, and no open competitive trading occurs on the COMEX exchange itself.

#### Step 4: Reporting to COMEX
- Within the same trading day (by the close of business on March 15, 2025), the parties report the EFP to the CME Clearing House via their respective clearing members (firms that handle COMEX transactions).
- The report includes:
- The number of contracts (100 contracts = 10,000 ounces).
- The agreed-upon futures price ($2,500/oz) and the EFP differential (-$5/oz).
- Confirmation that the physical leg (10,000 ounces of gold) has been exchanged.
- The CME Clearing House records the EFP, which reduces the open interest in the April 2025 gold futures contract by 100 contracts, as the bank’s short position is now closed.

#### Step 5: Physical Delivery and Payment
- The gold producer arranges for the transfer of the 10,000 ounces of gold from its London vault to the bullion bank’s designated vault (e.g., a bank vault in London or New York, depending on the bank’s preference).
- The bank pays the producer $24,950,000 (10,000 ounces × $2,495/oz) via wire transfer, adjusted for any additional fees (e.g., shipping or insurance, if applicable).
- Delivery occurs outside the COMEX system, typically within a few business days (e.g., by March 18, 2025), depending on logistics.

#### Step 6: Finalization and Confirmation
- The CME Clearing House confirms the EFP transaction, ensuring all paperwork aligns with COMEX rules (e.g., Chapter 7 of the COMEX Rulebook, which governs EFPs).
- The bank now owns 10,000 ounces of physical gold, and its futures position is extinguished. The producer, meanwhile, has effectively “bought” the futures position (taking a long position momentarily before it’s closed out in the EFP) and received cash for its physical gold.

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### Outcome
- **Bullion Bank:** Closes its 100 short futures contracts without needing to source COMEX-registered gold, acquires 10,000 ounces of physical gold in London, and avoids the standard COMEX delivery process (e.g., warrants and depository logistics).
- **Gold Producer:** Offloads 10,000 ounces of physical gold at an agreed price ($2,495/oz), converts its physical holding into cash, and avoids entering the futures market directly.
- **COMEX Market:** Open interest decreases by 100 contracts, reflecting the settlement of the futures position off-exchange.

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### Key Notes
- **Flexibility:** The EFP allows the physical gold to be located anywhere (e.g., London), not just in COMEX-approved depositories, as long as it meets quality standards and both parties agree.
- **Pricing:** The -$5/oz differential might reflect the cost of moving gold from London to a COMEX depository (if needed) or market conditions favoring physical gold over futures.
- **Volume:** EFPs are common on COMEX, with thousands of contracts settled this way annually, often dwarfing standard physical deliveries.

This example illustrates how EFPs provide a flexible, efficient mechanism for settling COMEX gold futures positions while linking the futures and physical markets.

x.com/kingkong9888/s…

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Eric Yeung 👍🚀🌕

@KingKong9888

Mar 10, 2025

Basically Basel 3 has two sets of requirements that affect Banks holding #Gold in all its forms: allocated, unallocated, and derivative.

1) Capital requirements that depends on the #Gold’s risk weighting. The risk weighting depends on the form of the #Gold held as well as the liability against the #Gold (bank customer or bank house #Gold).

2) Required Stable Funding that depends on the form of the #Gold held by Banks. LBMA clearing firms (Bullion Banks) received an exemption (0% RSF) for when they clear unallocated clients’ #Gold. Unencumbered (not leased out) Allocated #Gold is always 0% RSF.

Yes this is more complicated than how the COMEX works. The above are ALL describing the potential ADDITIONAL COSTS for Banks to hold #Gold.

It is designed to reduce the risks that Banks take on when they hold different forms of #Gold under different conditions (house or customer).

It is not designed to “encourage” Banks to hold #Gold for their own “house” books.

It would however “encourage” Banks to hold customers’ #Gold in unencumbered allocated form because that’s ZERO RISK WEIGHTING, Tier-1 capital, 0% RSF on the Banks’ balance sheet!

Thanks @Kim64450675 for helping me out with this one.

#LBMA #Basel3

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Eric Yeung 👍🚀🌕

@KingKong9888

Oct 20, 2023

BJ Milkshake finally admitted that the drawdown to the China Holding of USTs is due to “Net Sales” and not “mark-to-market losses”. This would apply to Saudi Arabia as well because of the new TIC reports methodology.

Of course I knew this months ago and have been saying that both the China & Saudi UST Holdings charts are Nominal/Face Value instead of Mark-to-Market because I am a private banking customer who has access to major HK banks’ Bond Desk research teams.

But Milkshake simps were compelled to waste my time by telling me that I was wrong and BJ Milkshake was right.

I hope you are happy now, Milkshake simps.

Thank you @Nostre_damus for notifying me. 🙏

@Sorenthek @TFL1728 @LukeGromen @thesiriusreport 🔥👆

Here 🔥👇

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Eric Yeung 👍🚀🌕

@KingKong9888

Aug 3, 2022

China’s Nostradamus from 1500 years ago Tang Dynasty China (618 AD) predicted Nancy Pelosi going to Taiwan?

“A woman in white visiting from the West will bring Chaos and Destruction amongst nations of the world. She is the beginning & origin of chaos.” - Tui bei tu Chapter 42.

The Bow represents War, the Guitar represents a false gift and the rabbit represents a Patsy (Sacrificial person/nation taking the fall).

The book is supposed to contain clues to China's future conveyed through a series of 60 surreal drawings, each accompanied by an equally obscure poem.[1] The title means "Back-Pushing Sketch" and comes from the last illustration.

en.wikipedia.org/wiki/Tui_bei_tu，

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Eric Yeung 👍🚀🌕

@KingKong9888

Jul 22, 2022

Recently, news often reported that the exchange rate of the Hong Kong dollar has hit the weak-side convertibility guarantee, the HKMA will take Hong Kong dollar sell orders, and the aggregate balance of the banking system has decreased.

What is the aggregate balance of the banking system? What is the weak party redemption guarantee? Will the aggregate balance of the banking system fall to zero, and will the Hong Kong economy explode?

1. What is the aggregate balance of the banking system?
Banks in Hong Kong must open a Hong Kong dollar account with the HKMA for settlement between banks or between banks and the HKMA. The sum of money deposited in a single account by multiple banks is the aggregate balance.

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Eric Yeung 👍🚀🌕

@KingKong9888

May 28, 2022

Oil Consumption Chart 🔥👇. Even during the 1970s stagflation/recession Oil consumption grew! Yet experts* today tell you that the looming recession* will kill Oil demand and therefore Oil prices will come back down. If it makes you feel good*, believe in the lies. You deserve it

Global Oil demand 2010 - 2021

Oil Cost since 1970 (from 1970-2014). 👇

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